Page 32 - Volume 15 Number 3

Falcon Insurance AgencyHalf Page4/C AdReliable, dependable, salt-of-the- earth-type character counts. A stable, well-run company with consistent financial performance is a big plus. Banks get very nervous when they find that bankruptcy was used to avoid past obligations. To some banks, character and reputation, or lack thereof, can override weak or strong credit. Same thing for the individual. If your track record matches that of30 • ­TWIN & TURBINECharlie Sheen, then you’d better pay cash.Collateral – No 100-percent financing means both a down payment and sufficient cash or cash- equivalents to secure the aircraft. Today, as a rule of thumb, you will need 20 percent down payment on a new business jet. As the aircraft gets older, you will be asked to come up with a larger down payment. For a 10- to 15-year-old business jet, 50percent down is not unexpected. You may even discover that the documents call for either posting a security deposit in the case of a lease or a pay-down of a loan if your aircraft value deteriorates during the term to a level unacceptable to the bank. Having a good equity position in an aircraft loan is not bad for you in the event you want to sell and pay off the loan. No one likes to write a check to cover a loan shortfall to get a lien release.Relationships matter. If you have a long-term, significant history with a financial institution, they should be your first stop when looking to finance an aircraft. They know you, your assets, and credit history and will be more likely to make the best deal in order to secure your business. However, make sure that they have aviation lending experience. If not you could pay fees and legal bills to “send them to school.”Leasing follows similar requirements. One plus in today’s market is that short-term leases (two to three years) may have more attractive rates as the banks are still looking to unload a lot of aircraft. Three to 10 years is a typical lease duration. Remember, plan carefully with a lease. Lack of flexibility is the major drawback of a lease. Trying to exit a lease early is easy: Just pay off the remaining lease payments! You may wish to negotiate for an early buy-out option if you think you may not make the full lease term.Be prepared. Among other things that a bank may require, gather together historical financial and tax information; interim financial information if what you have is over 90 days old; credit and bank references; the same stuff you need to get a home mortgage if you are borrowing as an individual; details regarding the aircraft including offer to purchase or purchase agreement; pre-purchase inspection report; information on the seller or broker; the name of your accountant and lawyer and indicate where yourMARCH 2011